Octodec Investments Limited (OCT) Earnings Call Transcript & Summary

Jeffrey Wapnick and the Octodec management team with us today to discuss Octodec's operations prior to the close of the half year period. Welcome, Jeffrey and the Octodec team, and thank you so much for taking the time to be here with us today. Shortly, I will hand over to Octodec for the update and then a Q&A session will follow. [Operator Instructions] So with that being said, I'll now hand over to Jeffrey.

I apologize. A warm welcome to all of you. A special welcome to all our shareholders, our potential future shareholders, analysts, our Board of Directors, and all of those, including the management team, that I've worked with, especially over the last 2 years, which have been tough years, but they've stayed with the game resiliently, remarkably well to see Octodec over the past 2 tough years that we've experienced. A special thank you to Avior for hosting us here today, much appreciated. I am going to put up a slide, which I always do because having gone through the list of attendees as supplies to me by Avior, I noticed there are a number of new names there. So just by way of introduction, if you could switch the slide, next and the next. Octodec at a glance. Octodec, a Johannesburg Stock Exchange REIT with a diversified inner city focused portfolio of 267 properties valued at approximately ZAR 11 billion. There's only one comment I want to make. And I think sometimes the market reads us as a purely -- either a residential-focused portfolio or a CBD-focused portfolio. And I just want to point out that 30% of our income has nothing to do with inner city as approximately 25% of conventional shopping centers that we have and followed up by another 7%, 8% of our industrial portfolio. So in a city -- so approximately 70% relates to the CBD and outlying areas. Moving on to the next slide, an overview for the period. I think the past 6 months, the first half of the financial year has been tough. But I want to divide it up into 2, the first 4 months from the first of September until the end of the calendar year, 31st of December 2021. They were tough years. We did see some movement around about the beginning -- the middle of last year. But I think that the events in South Africa, namely a little bit of COVID as well as the rioting that took place in South Africa, although none of our buildings were affected, certainly put a damper on consumer confidence during that period. So we saw a very tough but stable first 4 months. With regards to the second 2 months, namely January and half of February, I haven't had access to February's results, but I want to talk about -- a little bit about the applications, specifically on residential. It must be remembered that Octodec's results went backwards primarily because of our exposure in the residential field. What we're now experiencing is that quite a spike, quite an uptick in the number of inquiries into the residential -- for our residential flats. You must be made aware of the fact that it can take a month or 2 from the time a tenant moves in till the time that if he transacts with us, that particular transaction falls into our books of account. So whilst there is, I'm positive that there's definitely, in fact, we are experiencing record inquiries in the residential field, I don't want to -- I don't have a crystal ball and I'm not -- I will certainly hope that this, in turn, will result in a return to some form of normality pre-COVID. What is worthwhile mentioning, and I'm sure Charlene will touch into on this in her presentation, there were 2 -- Octodec's 2 big assets. The 1 was the Fields, which is a big student development. It really has suffered over this past period, because of the closing of the universities and the movement of students off-line rather online off-campus that hurt us, as well as the closure of the airport, which our Kempton development fed after. Pleased to report that the students are coming back. We've made a number of, call them, digital -- a lot of digital process in this office, whereby tenants can now apply online. We are now rolling out quite a bit shared and furnished accommodation in the field, which has proven to be very popular. I'm pleased to report that the uptake in this type of accommodation is strong. With regards to Kempton Park, 460-odd units, probably suffered with the greatest vacancy of all our residential buildings. The team there promised me by the end of March, this building would be full. So -- but we don't have a crystal ball whether this, in fact, will happen. Pleased to -- the airport will not close down and will continue the way it's currently doing. And so we anticipate strong growth coming from over there. With regards to moving over to Commercial. I think my opening remarks was regarding the first 4 months of the year. Daniel, who will talk about the Commercial part of our business, is going to agree with us, that the first 4 months remained subdued, despite a slightly stronger first half of the year last year. This year -- last year remained fairly tough in the beginning, but we are witnessing a slight uptick in demand. Anecdotally, I sit here in my office, and I look at my window, and things appear to be returning to normal. I can watch the cars driving past. I see the taxis; I hear the taxis. Whether this once again translates into dealmaking, well, only the future will hold on. But I'm sure within the next few months, we will have a better understanding of how things are going. It still remains a fairly challenging environment in which we're operating, although I am starting to feel a lot more easy, a lot more confident that things are improving. One of the things that by now, all of you would have heard, is council delivery. More specifically, our decision by the Tshwane mayor to accelerate debt collection. I think as a business, we support the acceleration of the debt collection. Because you can't run a council without the necessary funding. We get that. There is a concern even that sometimes certain of not only Pretoria properties, but housing, which include ours as well, we do get asked to pay amounts that are not due and payable by ourselves. I think there are 2 different types of collections here. The one is the utility collections. In other words, those charges that arise out of water, electricity. There are disputes on these accounts. And sometimes, it is true that Council do come, ask us to collect amounts that are not for our account. I'm pleased to report, however, recently this week, we've made good progress with Council, where we've opened up the channels and they are listening to us, and I think adjustments are starting to happen. The other one is with regards to the assessment rates. Council have moved towards accelerating the values of their properties. Obviously, we object in terms of the local municipal legislation. And sometimes where we have logged an objection to these, in other words, a rate dispute, they do attempt to close the building down or rather switch off water and/or electricity. So those are 2 new problems that we're faced with, but we support Council's decision to collect money that's due to them. I heard yesterday that the amount outstanding was ZAR 700 million of outstanding debt had been paid in the last 2 weeks. Larger projects remain challenging. It's a question of yield. There was a time in our country where one could operate or undertake a large project, because you knew with the passage of time, 2, 3 years, a project that started in a negative yield would throw automatic rental escalations, move positive. I don't think that our portfolio is there yet. So we approach large projects or potential acquisitions with great caution. But having said that, I'm pleased to report that a number of large projects have been successfully concluded with -- in the Octodec portfolio, namely the recent signing of Shoprite Checkers in Lilian Ngoyi, a 4,000 square meter upgrade to their current main store in the Pretoria CBD, a 2,500 square meter store in the Gezina, Pretoria. The building of a drive-through KFC in Waverley, although that's not in the CBD, as well as in the Johannesburg CBD, we opened a very large 1,600 square -- excuse me, a 1,600 square meter, Mr Price store adjacent to a brand-new, OK Furniture store of approximately 800 square meters. I don't want to dwell too much on those deals, I'm sure Daniel will in his presentation. Property fundamentals and valuations. I think that in Octodec, our property fundamentals are -- remain in place. And we have -- we are committed to making sure that our balance sheet and our style of operations maintain this to ensure sustainability going into the future, but it is becoming increasingly challenging. Cautious investment approach, balanced with the need to maintain buildings and ensure longevity and sustainability of assets kind of sums it up for me. The balance sheet optimization, everybody's speaking about it. Octodec is no exception. I don't want to get into detail. I'm going to ask our new FD, Anabel Vieira, to deal with that when she deals with it. Next page, please. I am now going to -- that's really the bulk of my presentation. But I'm now going to ask Charlene Conradie, who has some time headed up our residential team to talk to you about residential. Thereafter, I'm going to ask Daniel Swimmer to discuss commercial property and then ask Anabel Vieira, our FD to talk to you guys about the performance specifically of our balance sheet. So without further ado, I want to ask Charlene to take over.

Thank you, Jeffrey, and good afternoon, everyone.

Jeffrey, would you mind muting, please?

Is that better? Okay. That's better. Good afternoon, everyone. Okay. So in this slide, you can see a few important points that I think will just give you an overview of the residential portfolio. And I think the most important point is the vacancies. So as Jeffrey mentioned, last year, we were negatively impacted by the increase in the vacancies in the residential portfolio. And therefore, I've included 25 months of a vacancy trend for you to see. So this is based on number of units, and it's not on DRI, just important to note. If you look at the vacancy percentage at the end of January 22, at 26%, you can see it's already an improved number from '21, which was at 30%. As Jeffrey also said, we are receiving an increased number of leads and inquiries currently for the residential accommodation. And we have managed to conclude for the January, February 2022 period. We've managed to conclude an increased number in deals compared to last year at the same time. This is all very positive. As I've mentioned there as well, the University of Pretoria opened on Monday. The NSFAS increase has been finalized, and the NSFAS students are applying for accommodation. So leasing is well underway at The Fields, which is our biggest asset in Hatfield. Kempton Place, it's also one of our biggest assets. And last year, for the full calendar 2021 year, we struggled with high vacancies at this property. This has also started to decrease nicely due to the increased activity at the airport and in the travel industry. We have also introduced at the beginning of this year a new offering, which is a semi-furnished and shared accommodation offering at the Nedbank Plaza, which is also one of our bigger rating assets. We have started letting some of these units. And when we have our results presentation later this year, I'm hoping I'll give some positive feedback on the success of this offering that we've introduced now at the beginning of this year. Then just lastly, in terms of market rentals. Our market rentals overall have remained stable at the current level. And I don't foresee that we will be able to increase this until we reach a more normalized pre-COVID vacancy levels. And that's the residential overview in a nutshell. Thank you. I'm going to hand over to Daniel.

Thank you. Thanks, Charlene. Just from the Commercial perspective, not to sound overly repetitive and Jeffrey did touch on some of the leasing highlights that we may have mentioned at our annual results presentation back in November. And the drive-through that we're busy building is currently being built at Waverley Plaza is -- should be complete by the end of March as planned. We have successfully negotiated the Shoprite Church for our building in Church Street, their new lease agreement for 4,700-odd square meters. That lease should start in October this year. There's a lot of work that needs to be done beforehand, a reconfiguration of space. And I'm confident that once we've upgraded the Shoprite and reconfigured this, there's potential opportunity for other tenants to come on board in that same building. So it will hopefully improve that facility of that building, and some new additional tenants will come on board. We've also concluded the deal with another Shoprite in Gezina, where -- so very well-run Shoprite in serious need of an upgrade to the more modern step. So we'll be doing that. I mean, they're already on start and that lease kicks in for 11-year period, starting in -- starting -- well, in the past October. Just to further touch on those deals, Jeffrey mentioned the large Mr Price and the OK Furniture store that took occupation in the old Adcom space. The reports at the end of June from the operators that were very positive, that trade was good. Although, I mean, they've only just started in November and -- they had the large surprise that's literally down the road on their renewal, and that has been processed and finalized. Just to touch on the government renewals, we are busy with, and you'll see it in the larger leases that have expired, which we'll deal with in the next slide. But we have made some positive progress with the DPW. As it says here, there were 6 DPW leases that have been agreed. It was verbal and it's been communicated, et cetera, between for 24- and 36-month lease agreements. And as we prepared the slide before yesterday, we since actually received a couple of leases from DPW, which we would have liked to put through on our system. And unfortunately, there's a couple of admin errors from DPW side, and there'll be a short delay. But I mean, overall, those negotiations and those rentals, I feel are fair and potentially some upside down the road for us. If we can just touch on the vacancies for a moment, you'll probably be used to ask reporting with our core vacancies as well as total vacancies, which generally include what we consider mothballed areas held for development. We've just extracted the current vacancies as of the end of January. What we refer to as our core vacancies where it's an area that's ready to be let. You'll also notice that we haven't stripped out the specialized areas. We normally present the specialized areas as a separate sector. For this purpose, we've -- it's -- obviously, within each of those sectors, the areas like places of worship are for example, in offices or in industrial, et cetera. But I mean if you look at the overall picture paints, I think, is fairly positive. It presents some stability. We're 5 months in at this stage, and the little increase in offices actually comes from the education sector, where we have had one of our colleges, who's been with us for over a decade. He gave up a building in that period of time. We're still nursing his accounts in other buildings that we have with them. And I am -- there is a little bit of concern that he may, in turn, give up some more space. But the regular run of the more office deals with the smaller tenants that we always touch on the SME, the 20, 30, 50 square meters is very stable. And that trend continues as I reported back in November. The retail shops have also painted a positive picture, and this is largely due to the ex-Adcom space in Joburg, which we managed to relet that initial retail section, the ground and first floor to the Mr Price and OK Furniture. And I think we continue to make positive progress there with the general retail letting in a city. The shopping centers, and you must bear in mind, in this report, the shopping centers is a shopping center as a whole. We haven't extracted the office portion. It's a retail center. It's also made some positive progress there, and that's mainly due to the Meat World, Apple Tree deal, we concluded at the Park Centre, and there is -- currently, we're busy with some -- a fairly large deal in our context for offices at the way of Waverley Centre. So it continues to hold its own. The performance in those centers has been reasonable. It's -- we've seen from some of our tenants and what they've reported to us that it's quite evident that some people are shopping less. They're visiting less, but their basket spend has increased. And on the industrial side, it's almost down another percentage. It's continuously being positive over there. This reduction is fairly skewed, because what makes up the most portion of that reduction is a short-term lease that we concluded, which is a building that is held for sale. So the buyer has an occupational rental deal with us, and that building will be disposed of in a couple of months' time. That's approximately 2,000 squares or so. If we could maybe move to the next slide. So this is just an update on the progress made on our leases that are expiring in excess of 3,000 squares. It's the same slide we presented at our annual results presentation, just some of the comments have been updated. I will -- I mean, overall, I'm not worried at the overall picture of these expired leases. I'll ramp down then in naming them, I guess, will go by buildings. So starting with the Capitol Towers North, which is the city of Tshwane. It has been on a monthly lease for some time. There is a lot of uncertainty with the occupier, the City of Tshwane. There's been a lot of change within their management, et cetera. It goes on a month to month. And we have made our proposals to them to stay on in that building. There has been no finalization with this, and it will remain on a month to month for the foreseeable future. Centre Walk is one of those DPW leases that we have managed to agree on the rental. That lease had actually expired a while back. And they'll remain in the premises for another 2-year period. The Shoprite, we touched on, that lease will kick in, in October. It's a 10-year deal. And you'll note that there's a reduction in GLA over there. They're going to be in 4,700 square meters. And we plan to bring in other tenants to fill some of the space that they're vacating. The Fields, our SEDA tenant that original lease actually expired in December 2020. They were going to tender with us. We had submitted a proposal for additional space, and they were going to consolidate. And that tender was -- nothing happened with it. We renewed them for a year to December '21, and we've subsequently negotiated another lease extension. It's highly likely that they will go to tender, and we will obviously be part of that tender. There's a lot of push from Treasury for these clients for them to go out to tender. Kind of go out to the market, see what the going rentals are. So we expect that, but we also know that this client is exceptionally happy in our building. We offer a great product there, and I'm hopeful that we will be successful in retaining them. Jeppe House is a school that they've been in occupation in that particular building for quite some time. We've elected to keep them on a monthly for both parties. I mean they have been struggling. They don't have as many students as they had in the past, and the - it's a wait-and-see approach right now. How many students can come back into the school, can afford their monthly tuition fees? And there is a chance that they will give us back some space, and we'll have to see whether that's -- we're going to actually take it back and utilize it for something else. So it's going to dilute their rental. Station Place is an interesting one. It's a school, a primary school that we placed in the beginning of 2021, and have since renewed for 2 years. I think what really got them through this period of uncertainty is the fact that the people who manage and own the school, have other business interests, and they've managed to subsidize their rental for this period. The McCarthy Midrand building is still in line to be disposed of. There is a signed agreement with the tenant. We have obviously signed a monthly rental at an increase there, and we're waiting for transfer to happen. The CCMA Place, we're busy. And that lease expires in May '22. We have a communication with them on an 8-month extension post May '22. After the 8 months or in the duration of those 8 months, they are going to go to tender. They're possibly looking at other areas. They've tried this before a few years ago without success, it could have been in the beginning of 2019. And we're going to do what we can to retain them in our portfolio. The Apollo Centre building, this is occupied by Tshwane College. When I was talking about the increase in the office vacancies in the slide before, it's this tenant, who occupies 3 of our buildings. So he gave up the one building, he's still within this building. We are nursing him. He has been with us for a long time, carrying quite a bit of arrears. And again, he -- it's an uncertain area. It's not that there's a lockdown happening these days, but it's, do the parents have money for tuition and can now afford to send their kids to these institutions. So again, we're nursing him. We're applying the necessary pressure and we're hopeful that things still do turn around and we can retain them in this space. Intersite is our one and only Virgin gym. It's the only gym within the portfolio. We have successfully, I believe, agreed a 3-year lease extension. There's some work that needs to be done within the gym. They are going to be signing a 5-year lease, but they would like an option after 3 years to exit. And I think that's basically what they've experienced over the last couple of years since COVID began is that uncertainty. So we do have a 3-year agreement in place, and we're busy finalizing that. And the last one Odeon Forum is another parastatal. A very impressive one, in my opinion. They've looked after the building. It's in great condition. They run a good operation, and we always thought that we would -- and renew this lease fairly easily with them. The May '21 date is actually misleading. It was -- it expired before that, and we did a show. We've been doing 7 and 6 months and 3 months renewals. And we've just concluded another renewal that expires at the end of May '22. The current Board and the people that we deal don't have a mandate to lease for long enough. I don't see them going anywhere potential to maybe give up some space. Potentially, it's been discussed, but they're very happy in this building. It's well looked after. I think there's pressure for them to do some market research and see what other premises are available. But overall, they'll remain within the portfolio, I believe. We can move to the next slide. This is just a high-level picture of the arrears as it was at the end of Jan '22. You'll see that we -- as normal -- I mean, it's normal within the industry that December is a more difficult month with businesses closing, people going away, not as easy to collect the rental. And in January and February are playing catch-up. I think the teams are doing fairly well. Residential is remaining at just over 100%. Commercial at 97% with an overall arrear percentage at -- old collections at 98%. That has been spoken about possibly in the last presentation that government and specifically DPW, there were a lot of -- there were arrears for a period of time. There were nonpayments. Those things have all been settled. The accounts may not be entirely accurate in terms of their administration. But I'm comfortable to say that those payments have all been made. And we are still nursing a fair amount of what we refer to all the educational institutions as well as the places of worship, the typical churches that are in our portfolio. So there has been a slow improvement, but with all the COVID relief that was passed in the previous financial years, et cetera, we're not going down that route, and we're negotiating where necessary on new leases or perhaps rental reductions and the like. But overall, I think things are fairly stable in our -- in the section as well. I think that is all from my end. In just a summary from my side, I think, and Jeffrey touched on it. We're definitely seeing the city abuzz. Especially in the last few weeks, I don't think I felt the energy in both Joburg and Pretoria like this since before COVID. So we've always -- as we report, we've always said the energy is picking up, et cetera. But for me, right now, the roads, everything is occurring as normal. But what remains in people's pockets to spend at our tenants is still an unknown. And time will tell. We still don't have the government departments in our buildings fully returned to office. They're between 50% and 70% capacity, which also doesn't help. But the overall energy in the last few months, it's hard out there, but we have the nationals, who are continuously engaging in opportunities, and we are signing a couple of nice deals with them in the coming months. So for me, things are looking up. It's not easy. We're not seeing that change at the landlords now suddenly demanding the rentals that we would have had in the past. But we're making progress, slow progress, but at least things have stabilized, and we can hopefully now move forward. Thank you. Over to Anabel.

Thank you, Daniel, and good afternoon to everyone. So I'm going to deal in this section with the strategy up there, but it's really an update on the position of our balance sheet. So if you can recall during 2020 and 2021, our Board took a very firm decision to reduce the dividend payments in order to strengthen our balance sheet. And we just want to give you an update on how we've managed to pull through these last 2 years and the impact of what our decisions were. So with all the funds that we've retained from the lower dividend and the proceeds on the disposal of some of our properties, we've managed to repay ZAR 200 million of our ZAR 592 million facilities that are maturing May 2022 and August '22. We also anticipate to actually settle the balance of these facilities, partly with proceeds from the sale of our properties, as well as a little bit of new financing that we are getting. We've also managed to refinance the ZAR 500 million facility that expired at the end of December '21. We had touched on that already at our provisional results announcement. So that loan has now been extended for 3 years till 2024. And we're currently negotiating the refinancing of another ZAR 800 million facility that matures in August. ZAR 170 million of that will be refinanced for a period of 3 years and ZAR 650 million for a period of 5 years. So taking that into consideration, we expect to maintain our loan expiry within about 2.3 to 2.5 years, if all these things work out. And I'm expecting to be a little bit more positive than that. But those are the ones that we've kind of got almost down [indiscernible]. Also, we found a little bit more interesting in the debt capital market, where we were expecting to repay a couple of our notes on maturity. However, we've managed to refinance them more and also to extend the values on the refinancing of these notes. On the LTV side, we based -- as a result of the actions taken above, we expect a small improvement in our LTV from our 31st of August 2021 levels. That obviously will also be impacted by our valuation, which is the other side of the equation, right. So that is basically all on our funding. Looking at our property portfolio. So in the past, we've reported, it's been very difficult to dispose of the properties that we've set aside for sale. However, we have seen a significant improvement in the conversion from the offer to sell to the actual transfer. And since the end of our financial year, we've been successfully transferring 11 properties for a total of ZAR 119 million, and we expect to transfer a further 12 properties for about ZAR 154 million before the end of the financial year. So with all those proceeds, we're obviously applying them more to repay debt. And then on the capital expenditure. So we have -- Jeffrey has touched on it already, but we don't see us acquiring any new properties or even going into major redevelopments or conversions, but we are rather focusing on refurbishing and improving our current portfolio. And I think everyone's touched on this by now. But obviously, that is Shoprite in Lilian Ngoyi Street. The upgrading of the common areas and the entertainment areas in Plaza Place and Ricci's Place as well as the continued rollout of our WiFi to our residential and office buildings, so that we can just retain these buildings and make them relevant and current to our prospective tenants. So with that, I thank you all for attending our presentation. And I welcome any questions from the audience to the team. Thank you very much.

Thanks so much to the team. I will start the questions off with a question from Michael Porter. Michael says good afternoon. Thanks for making time this afternoon. With regard to residential, it's great to see vacancies starting to fall. Can you comment on current rental levels relative to those before COVID?

Okay. So I'll take that question. So the current market rentals are still lower than what they were pre-COVID. During the year, when we had the increase in vacancies, we had to decrease our market rentals in order to attract prospective tenants and fill our vacancies and those market rentals have not yet been increased again. And will only do so once the vacancies are more in line with pre-COVID levels.

The next question is from Rahgib Davids.

I just had a question. I mean, Anthony normally used to provide this, but since of the direction of earnings and cash flow generation over this period compared to sort of the prior period and sort of your intentions on dividend retention going for this period. If you can provide any guidance or comment on that.

You're right. Okay. I'll take that question. So yes, our cash flows remain strong in terms of our operations. However, in terms of the declaration of a dividend, I think it was mentioned before that obviously, the whole practice of declaring a 100% dividend is not feasible, and it's not sustainable. We need to do -- to claw back a little bit of our profits into maintaining our buildings and making them obviously more attractive and relevant. So I don't think we'll go back to 100% dividend declaration, but we'll -- how can say, maintain our dividend at least to retain our REIT status. So we have to obviously follow all the processes, make sure that we are solvent, that we are liquid, and, on that basis, we will arrive at a decision on how much to declare. But I think you've got to be patient and just wait for our interim results that we will be bringing to the market in the first week of May.

Next question is from Anton [indiscernible]. How do the DPW rental signed for 24 to 36 -- and 36 months compare to the month-to-month rentals prior?

Thanks, Anton. Basically, in out of those 6 that I was referring to, 3 of them were monthly leases, 1 of them expired at the end of, I think it was, December 2018. So bear in mind that they've been on monthly for a long time, and we still provided and escalated those leases. Although they remained on a month-to-month, we escalated them annually. I would say, on average of those 3, and 2 of the 3 monthly, these are 2-year leases. On average, we went down 20% and on the rentals. Those numbers were in our budgets. And as we were expecting that, we have been in discussions with them for quite some time. And so -- and the standard once the new rental kicks in, it's the standard 6% escalation thereafter. They did want these leases, and that's been our last discussion that dated to October 2021, which we haven't agreed to, and we would like them to only start from 1 April. The other 3 are leases that have not expired, and they were only expiring around October '21, and there we're getting an increase on the rentals of approximately 5%. And also those are 3-year deals and thereafter, 6% annual escalation.

Lawrence Rosenberg, you may mute yourself and ask your question.

Can you hear me?

Yes, we can.

Firstly, I want to congratulate Jeffrey and his entire team for an outstanding webinar. I think you guys are doing very, very well, and I'm most impressed. I just have one particular question. There is with regard to your forthcoming dividend that you are likely to declare. It used to be done -- used to declare dividends twice a year, and then with COVID, it went back to once a year. Do you have any thoughts whether you'll revert back to a twice a year dividend? That's it.

Anabel, do you want to handle this or perhaps I will take it. I think, Lawrence, thank you for those very kind remarks. It is -- I think that there are a number of things that are influencing dividend policies. Number one, Anabel spelled it out. It was REIT -- the retention of REIT status. It was an unwillingness of us to -- or rather willingness of us to prevent too much tax leakage and what's happening in the economy. The withholding of the dividend, all shareholders want dividends, all shareholders are used to double -- dividend twice a year. But it's very difficult and we'll be still living in times of uncertainty. I don't want to make a ruling that we're going to go back to the double dividend. I think what happens between now and the time of our next Directors' meeting where this thing is properly debated.

Next question is from Evan Jankelowitz. Octodec's trading at such a discount to NAV. Has there been any internal discussions to delist?

Evan, we are talking about all possibilities. I don't think this is the right forum for us to discuss it right now, but it's not something that's on the top of my agenda right now.

The next question is from Lloyd Ramakobya. Thanks for the presentation. Are you able to give an indication of which segments you intend to transfer or sell in the current year, i.e., office, industrial, et cetera?

I'll handle that one. I don't think there's a particular segment that we're overly worried about. I personally see some growth coming in residential. However, Octodec does have certain assets, which perhaps are for us, have passed their sell-by date. And these kind of assets, we need to accelerate sales. I think there to an extent that there may be a drag on current distribution. And if we could find a willing buyer, who sees value in these assets, we would sell them. You can see by the uptick in sales. These are not assets that we think we can maximize. And yes, we would like to sell this and convert it into cash.

[Operator Instructions] A question just keeping on the topic of disposals. These disposals that you made in the current year, the 11. Could you comment on the discount or premium to NAV, just overall that they were sold at?

All right, Jeffrey, you got ahead.

No, go for it. You're calculating these things.

So it's a mix and match. So some of them we go, and we sell them above our carrying value, and others are below. So it depends on the opportunity and the offer that arises. We certainly if the building and we really want to get, you can say, to dispose of it, we'll consider what the proceeds are, and we'll make a decision based on that. But some of them are at a discount, but then a set of others that were at a profit.

And overall?

So overall, on the 11 buildings that have quoted -- sorry, 11 or -- I've lost my number. We sold at a loss of ZAR 2 million. So on that ZAR 119 million, we basically included ZAR 2 million loss.

I think this is testament to the conservative nature of those people in the finance department. I don't think that we're going to come across and these things really for some reason, get materially worse, which we're not anticipating. I don't think you're going to see sales happening at materially levels below current carrying revenues.

The next question is from Chris Lovemore. Is there any commercial rationale for investment into solar, either grid-tied or off-grid?

There is. Certainly on a yield basis, it's very lucrative. The returns are well in excess of 20%, and it's the right thing to do. So there is commercial benefits to this. I think maybe I want to add that there are 2 more projects, which we will be hopefully starting within -- sometime between now and the end of the financial year.

The next question is from Paulo De Almeida. Could you talk to what you are seeing in terms of your property costs? Do you anticipate a further squeeze in your gross-to-net ratio?

Yes, we are very -- during this COVID period, we've become very mindful of maintaining costs. And I think that the team involved in this portfolio have become very good at it. There are, however, certain limitations to the amount of costs we can reduce. A number of our costs that we can't control and reduce are the administrative costs. The costs that are generally with respect to services provided by the City Council of both Pretoria as well as Johannesburg.

Then maybe sticking on to -- on the topic of costs, maybe your views around inflation and whether it's here to stay and the impact that's going to have on your cost, but also on your finance costs with rising interest rates.

I'm not an economist, but what I can tell you is that we do watch costs very carefully. And there is a fair amount of pressure on all our costs, besides not just our administrative costs coming through from Council at the moment. But many of our other costs, there's upward pressure there. And I don't know, I'm not sure how we're going to deal with this. I've never had to deal with increasing costs the way we're seeing it at the moment.

Are you able to provide any color on your asset valuations, the other side of the LTV ratio?

All right. I'll deal with that question. So yes, our valuations really are dependent on the fundamentals. And the fundamentals or the inputs are going to these valuations is your rental income and your expenses. So Charlene touched on it that we don't really see any major increases on the residential side. Although on the Commercial side, we are seeing the escalations already coming through. So we're obviously hoping to actually get that flat or anything a slight increase, and managing costs on the other hand, so that we can at least manage our net property income, which is the biggest fundamental in the property valuations. Our vacancies are also stabilizing. So we're hoping that we can keep that flat. And so taking those 2 major components into our valuations, we are hoping that we're going to see either a flat valuation or if anything, if it's negative, it's going to be a very small negative. Yes.

Another question from Anton. Have you increased your debt hedging? Post financial year 2021, it was sitting at 75%.

It was sitting much higher. So we were close to 100%. But since the financial year-end, we've brought it down to 78%. And we're hoping to keep it around those levels.

On the expiring leases that you presented on Slide 10, are there any that are really worrying you?

Daniel?

Out of that slide, if you just want to have a look at them, there would be 1 or 2 areas of concern from where I sit. So the college that I mentioned, the Apollo Centre, which is 3,200 odd square meters. Council they'll remain there, but they do have another building with us that they're going to give up. So we may keep them here in that lease agreement and manage to retain them, but there will be a spike in the vacancies elsewhere in that -- with the same operator. So that one will probably renew, but elsewhere, they're going to vacate and that's about 2,000 squares. And the City of Tshwane, just remains worrying by what's going on with them and their change in management and the politics, et cetera. It's proven difficult to renew this lease agreement. There's no clear answer in which direction they are heading. So if I were to pick one, it would be that one that would be worrying. The building is large. They do have partnering with us. They've been there for many years. Our proposal comes with a full-on refurbishment of the premises, a lower rental, et cetera. But there's other things at play there. So time will tell.

And then from an office perspective and looking at the oversupply in the market, what initiatives are you considering to manage the imbalance between demand and supply in your portfolio?

So if I could handle that one. I think you must remember; you must look at the type of offices we have. I don't think that the problems that COVID brought such as working from home is prevalent in our portfolio as much as it may be elsewhere. Our office offering in the main, and I'm not talking about the multiple stuff, but in the main, it's -- half of it is rent to government, and we're seeing that being very stable. In fact, they were our best tenants, not having missed a heartbeat in terms of payment and not having come to us asking for rent credit. And the other half is Commercial. Commercial is not -- in our language, it's not a traditional office tenant, but rather a small operator looking for reasonably quality accommodation to drive this business from. But it can be hair dresses, it can be driving school. It can be dressmaker. It can be a curtain makers, it can be debt collectors. And these are people that this is their business, and they can't give up space. It's not like certain corporates where they have decided, they don't need their 5,000 square meters, perhaps they can do with 2,500. This is their level of income, and they have to stay. It is true at the moment. It is a bit tough, but Daniel must comment on this one, but my certainly -- my interaction with our leasing people that work on these kind of deals, is that it's currently fairly strong. It hasn't fallen away. Do you want to comment on that, Daniel, and the small tenants of our offices, housing the small tenants?

So that continues. I mean we're not experiencing really anything different as we have in the past. There is churn in that area, but there's a continued influx monthly of new deals. We had a great January this year as well as last year with the offices. Although you must all bear in mind that these are 20, 30, 40 square-meter offices. There was a hesitancy a few months ago for them to enter lease agreements, but it's been more positive of late. Although -- and I think there was a question about rising costs, our rentals there are not growing. If anything, they've come -- they've moved backwards, but the rates and taxes have gone up, the electricity, all of that, those -- that's an additional burden on trying to do those deals. But we are progressing well. But I wouldn't say that we're doing more now than we've ever done before.

The next question is from [ Calin Wendoya ]. Can you give us a brief update on the multiple properties? And are there associated costs that are still carried?

We do have multiple properties. There seems to be a lot more interest from a number of players. Some of them wanting to enter into the government space. We're talking to 1 or 2 such potential purchases. The other one, which is becoming more and more noticeable, is those residential players that want to go into, which is the share game. It may -- multiple properties, office blocks may be attractive to them. There are 1 or 2 looking at those. The cost, we haven't looked at the cost before the holding costs associated with this in terms of outflows is really very negligible. But I guess in terms of holding costs or rather opportunity costs, the costs there may be material.

[Operator Instructions] I've got 1 or 2 questions left. And then we will hear from Jeffrey for some closing comments and then close out. Charlene, I think this question might be for you. Is there material or is there a huge difference in vacancy rates, if you consider on a GLA perspective as opposed to a per unit perspective in the residential portfolio?

Thank you, again. Now normally, they're pretty close -- there was one period where there was -- and I won't remember at which reporting period, the GLA and the vacancy by unit was a bit different, the percentage, but normally, they are aligned.

And I think my last question. What is Octodec's biggest risk currently?

Steph?

Thank you, and good afternoon to everybody. I believe that the affordability of our tenant base will continue to remain top of mind risk for us. The study design and the cost of living in a low-growth environment, coupled with the negative impact that the pandemic has as well as social unrest on the ability of some of our tenants to trade, mainly to search in the 10 bankruptcies and then the results in arrears as well as vacancies within our buildings. To mitigate this risk, we are in the process of investigating and rolling out a cheaper product, which appeals to our tenants.

We got a question from Marcus [indiscernible]. Could you comment on the quantum of assessed tax losses still carried in the group, specifically considering dividend payout and REIT status?

So we've got about ZAR 500 million of assessed losses. However, you've got to understand the structure of the group. And we've got a couple of subsidiaries they need the Octodec, and these losses are in those subsidiaries. So for as much as we want to utilize it all in one go, we can't, because we're limited by the profits generated by our specific subsidiaries. So we'll only be able to utilize a certain amount thereof.

And then another question from Gus. Can you please discuss if Octodec has refinanced debt to take advantage of reduced interest rates?

Yes. So that is basically the slide, I went through. And yes, we've got to refinance as the maturities arise, but there is pressure on the prices. So whilst the interest rates are low, the banks are increasing their margins. So we have to deal with that as well, but we certainly do try and take advantage of it.

Vela, you have just said sure on the chat. I'm assuming you don't have a question. Please raise your hand or post it if you do. But in the meantime, I think that's all the questions from the investors and all the questions from me. So I'll now hand over to Jeffrey for closing comments before I close out.

Thank you, Adrian, to you and your organization. Thank you very much for hosting us. And thank you to all the participants for actively engaging with us and asking some questions. There's not very much more I want to add, perhaps 2 more things that we didn't speak about today. And that was Octodec, as you may or may not know, has a very low well. And what does that mean in terms of the future for Octodec. I think that it means that all our rentals are at market. So when you have long leases and these long leases, which have been contractually escalated over the last 5 to 10 years, there's a big gap potentially between market and agreement of leases. Octodec doesn't have very many of that. That's one point I want to make. And the other one is -- and this is a personal view, I still believe in Octodec. I think that there's a need for the type of property in the CBD. I think people still need to work. CBD does provide a work space for a lot of people at an affordable price. The CBD does offer a lot of accommodation. People still need accommodation, and the CBD has that at an affordable price. If you have to look at some of the pricing differentials -- differences between what you can get in the CBD today versus elsewhere, it's enormous. And I think that given where our country is, given the disposal bill income of the man in the street. This is a real alternative. And so those are just 2 thoughts that I thought I may add, which didn't come up in any of our presentations as well as the questions thereafter. Once again, thank you to all of you that made the time to attend and listen to this presentation. But lastly, that last slide of ours is a picture of myself and Anabel. And it's there for a good reason. I do think that our properties are different from most others. And we welcome you people to come visit us. Our officers are here in Tshwane, to come visit us, and we can take you for a tour and you can see the flavor of the businesses as well as the offices in which we operate where you can see the management style that's employed to manage these properties -- 267 properties. Thank you.

Great. Thanks so much, Jeffrey. Thank you to you and the whole Octodec team for the great pre-close update. It was very informative, and we really do appreciate your time. Thank you to all the investors for joining and have a great rest of your afternoon.

Thank you.

Bye-bye.